Electronic Signature Licitness for Payroll Deduction Authorization in Australia

How to eSign a document: electronic signature licitness for Payroll Deduction Authorization in Australia

welcome everyone to our webinar on understanding employee obligations for payroll tax and superannuation my name is Helen and I'm the practice leader in legal Visions text team I'm joined today by my colleague Tom who is a lawyer in our corporate and Tech Team before we begin a couple of quick housekeeping items which you will see on the slide you'll receive the recording and slides new emails so no need to take notes please submit your questions in the chat box and we'll answer them at the end please complete the feedback survey after the webinar also all attendees are eligible to receive a free consultation with us to discuss how we can help you with your contractors contracts or any of your legal needs to request your free consultation please provide us through the contact details in the survey that in appears at the end of this webinar on the agenda today we'll be covering employer obligations and respect or superannuation and payroll tax in particular how your contractors are treated for superannuation purposes and your payroll tax obligations as an employer and respective payments made to non-employees at the end of the webinar we'll be answering some of your questions so please submit your questions throughout the webinar through the chat function and we'll answer them at the end okay great so now that the admin is all sorted let's get into their webinar employee obligations from a tax perspective determining whether your employee or sorry your worker is an employee or an independent contractor is critical to understanding what your obligations are as an employer or a principal to a contractor for the purposes of this webinar are we referring to the paying entity as the employer if the worker is an employee then the employer would have tax obligations such as withholding poig superannuation contributions payroll tax and Fringe benefit tax if the individual is not classified correctly so for example if the employer classified its worker as a contractor when in fact they're actually an employee then the employer may end up with severe penalties and back payments which could potentially bankrupt a business today we'll be focusing on whether a contractor is an employee for superannuation purposes and when payroll tax they need to be paid in respective payments made to non-employee relationships such as a contractor or labor High arrangement on the next slide we'll be discussing employer superannuation obligations employees are required to make superannuation contributions into a compliance of annuation fund for the benefit of their employees if these superannuation contributions are not made by the due date which I've copied and pasted here on the slide um directly from the Asia website then the employer could be subject to superannuation guaranteed charges of up to 200 of the superannuation amount plus additional penalties and interests this could be a significant financial consequence for a small business is generally pretty straightforward in employment relationship however it can become quite complicated as to whether you need to pay superannuation contributions if engaging a contractor on the following slide I would touch on who is an employee with evaluation purposes so who is an employee for superannuation purposes session 12 of the superannuation guarantee act provides that an employee takes an ordinary meeting the definition also includes an extended meaning in ance with the legislation the reason why the term employee is complicated is because the term is not defined under the legislation the legislation also does not provide guidance as to what the ordinary meaning of an employee means the consequences of this lack of definition and guidance means that even if a worker is engaged as a contractor they could be captured under the ordinary meaning of an employee it is not enough to call someone a contractor or have a contract agreement in place if the arrangement is actually that of an employee under common law further even if an individual does not fall into the ordinary meaning of an employee they may still get captured under the expanded meaning of an employee under session 12 of the subenuation guarantee Administration Act on the next slide I will touch briefly on the ordinary meaning of an employee now I wanted to touch briefly on on when an individual is considered to be an employee under the ordinary meeting is a law in relation to who as an employee compared to who isn't actually who is actually an independent contractor has been an area of confusion for many business owners it has been the subject of many court cases such as uncertainty imposes a significant compliance burden on small businesses the Ico has provided some guidance in a ruling called superannuation guarantee ruling 2005-1 on the factors that the Asia looks to when determining whether an individual is an employee or a contractor for superannuation these factors are commonly known as the multi multi-factoral test which looks to the totality of the relationship based on the facts and circumstances that surround the relationship between the employer and the contractor and determining the classification of a worker I have listed some of the factors considered under the multi-factor test on the next slide this is here are factors that the courts have considered to be key indicators as to whether an individual is an employee or a contractor a common law I won't be going through them today but please um have a look at them in your own time or many years now the multi-factorial test has been regarded as the key test in determining whether a person is an employee or a contractor however recent cases reflect a significant shift towards placing the primary focus on the written contract as opposed to the multi-factorial test unless there is no agreement in place or the agreement is a sham contract these recent cases mean that it's really important to put in place well-drafted contracts that accurately reflect the nature of the relationship it's important that you seek guidance and advice from your advisors the courts have made it clear that they will focus exclusively on the terms of the contract itself rather than the facts and circumstances surrounding the relationship it is important to know how you are that despite the recent cases the Asia has yet to provide a definitive position on whether the HL will be moving away from the multi-factor test Diego has however lighter recent cases announced that public rulings which provide guidance on the meaning of the term employee are currently under review further to this draft there is a draft practical compliance guidance 2022 D5 which was issued last December to assist taxpayers on the compliance risk it is very likely the age you'll be changing its approach in lateral recent cases but we will see now that we've touched on the ordinary meaning of an employee I did want to move on to the extended meaning of an employee in my net slide the extent of definition is only relevant if an individual does not fall into the ordering meeting of an employee I've listed here their various at Cinema meetings under session 12 of the superannuation guarantee Act I won't be going through each of them today but please have a look at them in your own time the important ones to keep in mind are payments to directors persons paid to perform or present any music dance entertainment sport or promotion activities and persons paid in relation to the making of a new film television or radio broadcasting but you see the meaning I did want to touch on today is under section 12 uh sub 3 of the subination guarantees act which is on my next slide station 12 3 provides that if a person Works under a contract that is wholly or principally for the labor of the person the person is an employee of the other party of the contract the Asia has provided some guidance in the ruling I mentioned earlier in relation to this extended meaning basically an individual would fall under a contract wholly or principally for the labor of the relevant individual is remunerated wholly or principally for their personal labor and skills secondly if they perform the contractual work personally for example there is no right to delegate the work and thirdly if they're not paid to achieve a result having one of these factors does not mean that the individual automatically falls into the extended meaning it is a matter of looking at the facts and circumstances of the relationship for example if an individual is engaged to achieve a result and there is a right to delegate in the agreement even if that delegation requires written consent by the employer then it's arguably that this individual Falls outside of the extended meaning even if they have paid wholly for their personal labor and skills which means there's no requirement to paste opinuation and respect to the individual unfortunately the distinction of whether an individual is an employee or contractor is complex and getting it wrong can have significant economic consequences for an employer or a small business we recommend that every business should review all of their contractor agreements and revise revise any structures as needed advice should be sought to an engaging contractors to determine whether they fall into the ordering meaning of an employee or into one of the extended meetings under these valuation guarantees Act I've listed here some practical tips um making sure your con you based on recent cases it's really important that you're making sure your agreements accurately reflect the arrangement between you and your contractor you should also consider whether the agreement can include the right to subcontract the work delegating the work even if it requires written consent by the employer sitting out clearly what you're paying the contractor for and whether you can pay them on completion of the project so results-based agreement and it was and if you're not sure whether the agreement falls into the extent of definition or not then you should be seeking advice from your advisors now I think there's enough superannuation today um I'll pass you across to Tom who will go into employers payroll tax obligations thanks Tom great thanks Helen so the first question when considering an employee's payroll tax obligations is first and foremost what is payroll tax so payroll taxes estate and territory based tax which is imposed on an employer when their total Australian wages paid to their employees is over the relevant state or territory threshold it's important to note that each state and territory has a different payroll tax rate and also a different payroll tax threshold so an employer will need to register for payroll tax in a state or territory when it's total Australian wages is over that state or territory's threshold a common trap that employees often fall into is only considering workers in a particular jurisdiction and whether the amounts paid to their workers in that jurisdiction is over that jurisdiction's threshold amount an employee needs to look at all of its Australian wages and consider whether that amount is over the jurisdiction's threshold now another common question is what are actually considered wages for payroll tax purposes so wages are more than just wages or salaries paid to employees wages does include these things but it also includes remuneration commission bonuses or allowance paid or payable to an employee basically any remuneration paid in exchange for services to a business can be captured by the definition of wages for payroll tax and it's also important to remember that shares or options granted under an employee share scheme are considered wages for payroll tax purposes meaning that the market value of those interests will need to be added into employers wages on the relevant date and broadly speaking an employer can choose whether this relevant date is the date those interests have been granted to the employee or the date that the employee exercises them so we've put each state and territories payroll tax rates and thresholds on the screen I won't go through them but it's important to remember that these thresholds and rates are current as of today but certain jurisdictions have announced in their relative budgets that there's been proposed changes for future Financial years so it's important to get advice that's based on the relevant Financial year and how those thresholds might apply then so there's some payroll tax uh key Focus areas that we want to take you through today that can cause particular pain points for employers so there are certain Provisions in the payroll tax law that deemed certain workers as employees and deem the payer of those employees as an employer so a particular focus at the moment is engaging contractors so engaging sorry payments to contractors can be considered wages for payroll tax purposes if the arrangement is considered a relevant contract so there are certain exceptions to this such as when the contract is primarily for the delivery of goods where there's no Services involved or where the contractor works in the business for less than 90 days in a financial year if a contractor Falls within the relevant contract rules the contractor will be deemed an employee and the person paying that contract will deemed will be deemed an employer and the amounts paid by the deemed employer to the deemed employee will be deemed as wages and these payments will contribute to the employer's total wages in the relevant reporting period another key Focus area at the moment is Employment Agency arrangements so if you're in the business of procuring workers to provide services to your clients such as a labor hire business the employment agency Provisions in the payroll tax legislation May apply to this arrangement so in this case the employment agency is deemed an employer and the service provider who provides services to the employment agencies and client is deemed to be an employee of the employment agent so this means that the employment agent will have to pay payroll tax on the amount paid to that worker even though that worker is providing services to a client of the employment agency now if it's an on higher Arrangement where One Employment Agency engages a second Employment Agency to procure a worker for a client of the first employment agent both agencies may need to pay payroll tax on this Arrangement unless a chain of on-hire declaration has been completed by the parties but generally speaking payroll tax will only be imposed on the employment agency with the real with the closest relationship to the end client receiving services and another key Focus area is when an employer has workers in multiple States or territories so when an employer's total Australian wages exceeds a state or territories threshold and the employer has workers in that jurisdiction the employer will need to register for and pay payroll tax in that jurisdiction so in the case that the threshold of that state or territory is then apportioned between the thresholds in the other jurisdictions to reflect the total percentage of wages that are paid in that jurisdiction as compared to its total Australian wages so where an employer will actually pay tax in respect of an employee's wages depends on where the employee performs their services in a given month so in the case that the employee performs all of their services in a given month in one jurisdiction then payroll tax will be payable there however there can be a bit of a pain point where an employee might provide services in multiple jurisdictions in a given month so to this effect each state and territory has adopted a uniform Nexus test which can be applied where a worker performs duties in multiple jurisdictions in a given month and by applying that Nexus test or getting your advisors to help you with that Nexus test you'll be able to determine where payroll tax may be payable on payments to those particular workers so there's been some changes to the payroll tax landscape because of some recent cases which have changed how payroll tax has been looked at especially in the medical practices space so these cases have found that payments made to doctors biomedical practice can be captured by the relevant contract Provisions which is concerning for the medical practice industry given that a lot of medical practices have been set up in the same or in very similar ways to how the practices have been set up that have been discussed in these particular cases and so it's a bit up in the air at the moment about how the state and territory Revenue officers will respond to these recent cases so probably the most famous of these cases is Thomas Naz case which the appeal was handed down very recently in March of this year so this case has become pretty famous in the payroll tax base and it concerned Arrangements between a medical practice and doctors working there where the practice was collecting the doctor's Medicare benefits on the doctor's behalf the practice would then keep its cut and then pay the rest to the doctors the key takeaways from this case was that the doctors were providing services to the medical practice and not just to their patients because seeing patients was so inherent to the medical practices business and this meant that the relevant contract Provisions applied to that arrangement the court then also held that the payment of the Medicare benefits by the medical practice to the doctor's were considered wages and that it was irrelevant that this money that this was money that was otherwise owed to the doctor's biomedicare so it was an interesting point that the nature and character of the payment wasn't relevant it was just relevant that a payment was being made under a relevant contract so the only state that has released anything about their proposed approach is Queensland so they've published a public ruling setting up their proposed approach and also have provided an amnesty which allows taxpayers to try and get their house in order given the lack of clarity in the law so if you need any assistance with this whether it's applying the public ruling to your particular circumstances or assistance in applying to get under the amnesty please let us know in your complimentary consultation so this is an issue as I mentioned earlier as a number of medical practices have historically been set up in this way so if you're not sure about whether the relevant contract Provisions apply you should come and talk to us so that we can assist with getting your payroll tax Affairs in order so I just want to go through some practical tips so when it comes to managing your payroll tax liability so the first tip is making sure that the service agreement is drafted in the correct way and it should be made really clear in this service agreement which entity is actually providing services to who so is it the case that the contractor is actually providing services to the particular business or such in the case of the doctor Arrangement is there Services actually going the other way so in the case of the doctor the argument was that the medical practice was actually providing Services the doctor being a license to occupy the space so that the doctor could run its own business so if the argument is that there are no Services being provided by the contractor to the business then the service agreement should be clear that there's no control being exerted over the contractor and how it runs its business there shouldn't be any restraints in the contract uh preventing it from providing similar services elsewhere there shouldn't be a new roster or leave requirements that kind of thing so another practical tip to consider is whether whether any of the exemptions to the relevant contract Provisions apply so one in particular is using a particular contractor for less than 90 days in a financial year so if that's the case the payments that contractor would be exempt from payroll tax and there are another uh sorry a number of other exemptions that we can provide advice on so another practical tip is considering the flow of payments and how the money is actually being moved between the parties so this is especially relevant where a party is acting as a payment agent such as in the context of a Marketplace where potentially money is just being held on behalf of another party to eventually pass it on so in the terms and conditions it should be made really clear whose money this actually is and this is relevant for payroll tax but can also be relevant for other tax liabilities such as income tax and then finally last practical tip on payroll tax is making sure that your marketing materials reflect what's actually going on and if contractors are being used in the course of running your business not advertising the services of those contractors as being part of your business so this was considered in the Thomas and Naz case because in that case the doctors were listed on the Thomas and Nas website as being our doctors so that's just something to keep in mind there so unfortunately the distinction of whether an individual is an employee or contractor can be complex and as Helen mentioned getting it wrong can have significant consequences for an employer so we recommend that every business should review all of their contractor arrangements and revise the structures as needed and advice should be sought when engaging contractors to determine whether for payroll tax purposes they might fall within the relevant contract provisions and whether any of the exemptions May apply to exempt those payments from payroll tax so that concludes the main part of this webinar you might find our payroll tax Essentials fact sheet useful you can download it through the handout panel or by scanning the QR code on this slide we also have an upcoming webinar that may be of interest to to you protecting your business best practice for preventing employee competitors on Thursday the 3rd of August at 11AM Australian Eastern Standard Time you can register on our website so we're going to answer your questions shortly but while you submit them we'll take a minute to tell you about our membership legal Vision membership is a cost-effective alternative to have all of your business's usual legal needs covered for a fixed monthly fee you not only receive cost certainty but all inclusive benefits such as unlimited document review which would include reviewing your commercial contracts unlimited consultations which means you can book as many meetings with us as you need to discuss your commercial contracts or for any of your business's use your legal needs you can talk to any of our lawyers including us in the tax team but also franchising corporate employment Etc depending on your business's needs your membership also offers unlimited trademark registrations all for one very reasonable monthly fee with options to purchase extra credits towards complex matters such as those discussed today and ongoing disputes which are charged on hourly rates basis and now we'll answer some of your questions thanks Tom we've had a few questions come through um just looking at them now I've got a question here and it's a few people have asked the same question about whether the obligations change if there are different legal entities being the employer um this doesn't change the obligations from a tax perspective whether you are employing them as a sole Trader or a is a partnership or through a trust or a company so it's important that you are checking that you know your tax obligations as an employer whether you're in any type of legal structure the other one that kind of relates to this question is also if a company is set up and um the directors and shareholders are employed through that entity whether they're obligated to pay themselves a minimum wage um it is a employment law question because under the obligations for minimum wage is under the fair work act it's not really a tax obligation but it's important that you are seeking employment advice we do have employment team here so if you are wanting advice on minimum wages or how to set up your employment arrangements as a director then please reach out to our employment team and I think they can go through those minimum wage requirements I just have one other question here I wanted to cover was are there any superannuation risk if I'm a director of a company um if as I mentioned earlier if there are superannuation is not paid um all these late payments and the company does not pay then there are significant penalties and interest if the company does not pay those penalties and interest and those debts outstanding the ATO does have the power to issue direct dependency notices which is then a risk for the director personally it's imposing those penalties and debts to the director uh we also had a question around what are the payroll tax obligations in relation to an ESOP program so I did briefly cover this before but just to reiterate so the market value of the interests under the ESOP so the options would be included as taxable wages for payroll tax purposes but the employer has the option to choose what the relevant date for including those wages in its payroll tax amounts so it can either choose the date of the grant but it can also choose the date when the employee exercises them and so it will come down to what the employer thinks is that are from their payroll tax liability perspective and what might produce a lower payroll tax liability for them where another question come through which says where contractors are engaged on a retainer what can you do to further distinguish the relationship I'm assuming on a retainer means an ongoing basis um whether that contractor as an employee or not is going to come down to the facts we would you know we'll look at the multi-factorial test and determine you know what the controllers what type of work is involved whether they're being paid on a results basis whether the work that they um you know sit out in the retainer can be delegated to someone else um where there's a restraint period there are a number of factors that we will need to consider um under that retainer relationship to distinguish whether they're an employee or a contractor um it would be really important to also look at whether you're paying that contractor principally for their skills and labor if they're restricted from delegating the work and you are paying them on an hourly rate basis then there's potentially a high risk that there they could fall under the extended meaning of an employee for superannuation purposes um for payroll tax purposes it's very likely that they'll fall into the relevant contract provision for payroll tax and you may have to pay payroll tax in respect to the payments being made to that contractor unless one of the exemptions apply so definitely look at the um one of the slides I think with Tom had the exemptions listed depending which state you're in um if you're not sure please reach out um you know log your details on the consultation and we can have a chat to you about your particular contractor there was a question about do the contractor rules apply to contractors who are based overseas and if so how do they differ so generally speaking payments to overseas employees or contractors will depend on how long they're overseas for but generally speaking payments made to contractors based overseas wouldn't be captured in your payroll tax wages for that particular reporting period in the case of employees we would need to consider what the arrangement was in a little bit more detail and how long they've been overseas for that kind of thing so if you have employees that are overseas and you're concerned about payroll tax then definitely get in touch going off that one there was another question about um of hiring employees from overseas and how that would work and what your obligations are from a plyg and submenuation obligation generally speaking if an employee is permanently overseas and they're exercising their work in their other country then there is no obligation from a poig obligation but it's very dependent on the facts and forced evaluation purposes as well there is distinguishment between whether the person is going to be in the country permanently or whether they're going to be working permanently outside of the country there are also considerations as to if there was tax payable in Australia whether there's also tax payable in the other country and then we would need to look at the Double tax treaty as well one of the other questions um talked about whether what happens if an employee is being employed in the other country while they're waiting for their visa to be approved in Australia and whether they need to paste a valuation it's a complicated question because it's going to depend on whether the employer is required to pay superannuation in the other country and when they come over to Australia once their visa is approved whether a certificate of coverage needs to be applied for in the other country and then and then submitted to the ATO here because there are bilateral security Social Security agreements between various countries and the Australia so with these particular bespoke questions I think it's important um if you are still wanting advice on it to submit your details into the consultation and we can get in touch with you about your specific matters there was a question about determining for determining the ESOP fair market value can we use the ATO Safe Harbor methods so for payroll tax purposes no you can't use the Safe Harbor valuation methodology for payroll tax purposes and adding that into your payroll tax wages for that particular reporting period so you'll need to consider what the fair market value of those are which is a question really for a valuer so definitely come and chat to us and if needed we can put you in touch with our partners who work in the valuation space so we had another question for payroll tax around the employment agency and on hire which was what happens if the agent closest to the client doesn't pay payroll tax because they're under the threshold for that particular jurisdiction so in this case assuming that the second agent in the chain of on higher Arrangement was liable to pay payroll tax because they were over the threshold in that relevant jurisdiction then that second agent would then have to pay the payroll tax for that particular arrangement and then we just had another one on payroll tax as well uh which was so if we have a single employee who works remotely from Queensland but the rest of our employees are in New South Wales that means we'll have to register for and pay payroll tax in Queensland so the answer to that is assuming that your total Australian wages are over the Queensland threshold which at the moment is 1.3 million dollars uh it doesn't matter that the rest of your Workforce aren't there you will have to register for payroll tax in Queensland I just had another question on the superannuation fund um what if we've engaged our contractors or we don't have anything in writing what about what are our risk um as I mentioned earlier it's really important to ensure you have your Arrangements um in writing um as the due to the recent court cases um the importance of having a written contract is Paramount the iso has issued as I mentioned a practical compliance guidance it isn't draft and it's still um waiting for submissions I think the submissions have been completed um so as being finalized but essentially it is a practical compliance guidance which gives taxpayers guidance as to circumstances where the ATO are likely to put resources towards the arrangement the guidance provides that if you meet certain factors such as um you know you've discussed with the other contractor and your sort of advice as to the arrangement and both parties understand their tax obligations the contractor has agreed to its obligations and respect the payments of valuation and paying poag then there is a low risk the ATO is going to put resources towards the arrangement it still puts a lot of onus on the parties and also on the employer to seek legal advice so whether this practical guidance is actually going to alleviate some of the burden that's put on small businesses is still up in the air but we'll see you know how the Asia actually implements and enforces this practical guidance all right well that's all the time we have for today so after the webinar ends the survey will pop up we'd really appreciate it if you can if you could complete the 30-second survey please include your contact details to receive a complimentary legal consultation to discuss how we can help you with your payroll tax and superannuation obligations if we haven't had a chance to answer your questions today please book in a complimentary legal consultation where we can discuss your question in more detail thank you so much for joining us today thanks everyone foreign